Lessons Learned From 'Pay What You Want'

from the don't-knock-it-til-you-try-it dept

The 'pay what you want' business model is popping up all over the place. It has been applied to music, movies, games and even food. Some instances have been successful; some not so much. phreakindee alerts us to the results of one of the latest experiments in this business model.

Joost "Oogst" van Donge, the creator of the game Proun, wrote a very thorough examination of his 3 months long experiment with 'pay what you want'. It's really nice to see a developer so open with this much data. Very few companies or developers will do this. I really recommend that you read the whole thing. He shares some very good lessons about this model and how it can bring in some money, but maybe not enough to succeed as a game developer.

So rather than rehash all of his points, I want to take a look at his experience and what lessons we can learn from it when taken into consideration with the overall 'pay what you want' landscape.

One of the first things that come to mind when I read about these experiments is the Humble Indie Bundle (currently up to five sales). The Humble Indie Bundle made a name for itself by bringing together a number of great indie games and allowing the buyer to pay what they want. On top of that, they offered the buyer the ability to give all, part or none of the purchase price to two charities, the EFF and Child's Play. This could be seen as one of the biggest draws of that bundle and is something that Proun's sale lacked. While not a sure thing, a charitable option in these sales has been shown to change buyer behavior and pricing.

The roller coaster experiment showed that buyers paid 5 times more for the charitable version of the sale over the version that lacked the charitable option. This also brought in far more revenue than any option whether 'pay what you want' or not. Had Joost offered a portion of the buyer's price to a charity, he may have seen an increase in the number of people willing to pay and an increase in how much they paid. Again, that's not a sure thing but it would have added another variable to the calculations made by the customer. This could be something for him to try as he continues the experiment.

Let's look at some of the numbers now. The first interesting set of numbers spring from the fact that this sale allowed buyers to pay nothing for the game. As Joost points out:

The $0 price point here is people who used the same store as the paying folks but filled in $0. They didn't have to fill in there Credit Card details as a result. I cannot know the exact number of Torrent downloads, but since every install of the game contacted my server, I do know the total number of installs, so I can estimate how many people got the game from something other than my server.

Based on his estimates he found that 247,379 people either paid nothing and downloaded from his site or downloaded from a torrent. Now he did expect plenty of people to pay nothing. After all, he did offer that option. He is not mad and comes to a very valid conclusion to this:

I think the main reason why so few people chose to pay for Proun is this: the free version did not require a Credit Card transaction and was thus way easier to download.

That is quite the lesson and quite true. Users want things to be as convenient as possible when making a purchase. The more steps you add to the process, the less likely someone will make it to the end. This is a very difficult lesson for some game developers. Many game developers are adding more and more steps to not only the process to purchase the game, but also to the process of installing and subsequently playing the game.

Ask any gamer and they will most likely tell you, they simply want to get, install and start playing the game as soon as possible. Anything that slows that process down is a no go.

Next, we see that Joost recognizes that he may have made more money had he set a floor price on the game:

So I think if I had set a minimum price of $1, way more people would have decided to pay a couple of dollars for Proun. Simply because they already had their Credit Card out for the $1 and figured the game was actually worth a bit more. Fewer people would have played Proun, but I think more people would have paid, making Proun a bigger success financially.

However, that was not the main goal of this experiment as he says immediately:

Note the emphasis on financially: my main goal was to get as many people as possible to play my game, and the scheme I used was definitely a good choice for that!

If all you want is to get people to play the game, then, yes, you probably should offer a free version, even if the vast majority of people choose that option. This again is a hard lesson for some game developers. While the industry is trending toward free to play models, many other models that allow gamers to try a game for free have disappeared. We no longer see shareware games or even game demos from major game companies.

Next, we have some interesting trends in the prices actually paid. Most people who paid for the game chose a price between $2 and $2.99. Joost explains that $2 was the minimum price a customer needed to pay to get the free track along with the game. What this shows is that with a proper incentive, most people are willing to pay at least the minimum in order to get everything that is offered. This is also something the Humble Indie Bundle has shown. When it offered a bonus to people who paid higher than the average price paid, it tended to get even more money.

What this price trend also shows is that for a lot of people, $2 is about the max they are willing to pay for a game. We see this trend with the iPhone. When the iPhone was released, the price of games and other apps quickly shot down to the $1 range and the majority of the top grossing games are free to play. What this means is that when users have greater control over pricing, either through market pressure as with the iPhone or through a 'pay what you want' system, the price paid will almost always trend to the lowest possible price.

In the end, Joost is looking to continue the 'pay what you want' model, this time with a floor of $1. He feels that the first stage was a success. He got 250,000 people playing the game and hopes that word will continue to spread.

For the rest of us, we can look at this experiment and other versions of this and learn a number of valuable lessons. For me, I don't think 'pay what you want' should be your only business model. I think it works great as a promotional opportunity, but if you expect to make a living this way, you have a hard road ahead of you.

This is more how to manipulate customers than build good products.

But tricks with donating to charity and crippling the game below a certain price paid, hmm, confuse it at best.

Bottom line here is that downloads are easy, getting /money/ for them is difficult. You guys really need to focus on that fact. -- But you're only observers, not putting your own time and money into a product and then trying to get re-paid at least. I think if you did actually have money in the game, it'd change your opinions quickly.

Users want things to be as convenient as possible when making a purchase. The more steps you add to the process, the less likely someone will make it to the end. This is a very difficult lesson for some game developers.

And yet, it should be a very simple thing for game developers to understand. Valve showed that even when you pay for the game, you still probably won't finish. Only 50% of people that played Half-Life 2: Episode 2 have even played on the last map.

Re: This is more how to manipulate customers than build good products.

But you're only observers, not putting your own time and money into a product and then trying to get re-paid at least. I think if you did actually have money in the game, it'd change your opinions quickly.

Yes, if only there was someone that had made a game and was willing to experiment on a business model. Maybe then we'd learn whether or not money can be made. I'm sure it's happened, I just hope someone can point us to an article that a developer might have written about their experiments in getting paid. Where ever will we be able to find such a thing?

Re: Re: This is more how to manipulate customers than build good products.

Yeah. I wish Mike could just understand how hard it is to supply something cheap, or free, while putting a lot of time and effort into it, and then try to make money based on it. Like using a blog, or something, in order to create a customer base for a paid service...

Re: Re: Re: This is more how to manipulate customers than build good products.

Re:

Portal 2 has an interesting achievement called "Wake Up Call". You get this achievement at the very very very beginning of the game, there's pretty much no way to get it unless you buy the game and don't play it.

Re: Re:

The number of companies with your credit card..

I think the main reason why so few people chose to pay for Proun is this: the free version did not require a Credit Card transaction and was thus way easier to download.

I agree with this 100%. This is precisely why I love Steam. I want as few places to have my Personal Information as possible; I call it my Personal Information Hurdle. With Steam, I give only one company my Personal Information - Valve - and nobody else gets their grubby little paws on it. Valve has overcome the Hurdle and is worthy of owning my information, like newegg and Amazon before it (for now, subject to change without notice).

I have found that with Steam sales, I am more than willing to throw $3-5 at a random puzzle game that seems sufficiently interesting. And I have been quite rewarded with some very fascinating games.

He should think about extending sales to the Steam platform and still doing pay what you want. The percentage of Steam sales that do $0 would probably be significantly lower thanks to overcoming the Personal Information Hurdle.

Re: This is more how to manipulate customers than build good products.

problem is..

most people are hopelessly ignorant to how much hard work and investment goes into projects, as they are spoiled by so much entertainment. So what their judgement of a fair price is, is way below the mark.

Re: The number of companies with your credit card..

I have a simple policy with Steam - if it costs more than USD$10, I don't care about it. Once games drop below my personal price point, I'll buy them - I haven't played roughly half the games on my Steam account, but they dropped low enough in price and looked interesting enough.

If a game has DLC, I wait for the DLC to be bundled with the game itself - I don't want to have to keep installing extras for my games. I'll usually wait about a year after the last bit of DLC before I buy it too, just to make sure there's not going to be any more.

If a game goes under USD$5, I'll generally buy it so long as I'm moderately interested in it.

Re: problem is..

That's exactly why a "pay what you want" model isn't going to be good in the long run for the content creator. It's definitely a good way to promote something, (like, say a pay what you want deal for early access to a game demo) but definitely not a way to pay your bills! It's funny how people want to make more money themselves, but don't offer that same opportunity to the people who make the content they consume. Because it's those same people that bitch and moan when a dev goes under because they don't have the funds to keep making games.

Pay what you want models are an interesting experiment, but as has been hinted at in the comments this is a psychological experiment more than anything. Restaurants and Museums have had quite a bit of success with these models because there is human interaction and people don't want to look cheap. In online software, anonymity eliminates this psychological barrier.

I would be very interested to see what would happen if the base games were given away for free, but additional levels or access to other games by that developer required a payment, either monetary or a contribution back to the project in the form of documentation, testing, developing new maps etc. This would have a couple of interesting effects: the developer would see which percentage of users really value the game, it would demonstrate what users value more - their time or their money, and it may create a dedicated core group of users who keep the game alive and fresh.

Personally, I have had multiple experiences where I've started using an open source program and have liked it so much that I have contributed to the original developer. However, in every single instance, I have only done this after extensively using the software and the developer was an individual, not a group. Again it goes back to psychology: I feel more of a connection to an individual who has shared his hard work with me than to a large group or an anonymous developer. Guess in my case CwF is more important than RtB.

Making free pay

One way to turn free customers into paying customers is to release an upgrade of the game or enhanced version that costs a small amount of money. Embed the code in the free download that sets the clock ticking. Use a locking algorithm to secure the serialized free copy to the upgrade. Sure some people will get around it but most people will pay. That being said, I have been using Avast at the free level for years. That's their problem since they haven't built a compelling model for upgrading and the price is too steep for the incremental value.

Re: Re: problem is..

I'll pay $40 for a game at a store, but I will not pay $40 for a download of same game. Where is my disc? Case? Instruction booklet? 1 on 1 advice/opinion?

They are also clearly gouging. When all you have to do is wait 3 weeks from release date for the price to drop...

I will not be jumping through hoops to get some game to play either. Create online accounts etc...I will do without and play my old games. Two of them have already installed on 7 without a hitch(FYI - GTR2 & GT Legends). No need even for XP Mode.

I am in the market for a new game at the moment, but I will not buy one that requires an internet connection. I play games on MS-7-Unplugged.

When I pay money, our transaction is complete. Making me fulfill other obligations? It better be written on the box, or both producer and retailer will have lost a customer for life as I will ask if it is not clear on the box.

Pay what you want is still a unique enough concept that people have not fully developed defences against it. As a result, many of them may over pay in the situation for purely moral reasons, rather than logical reasons.

I suspect that, however, if enough stuff was offered in this manner, that it would rapidly become the net "free!" source for many people, and the effectiveness of this sort of marketing might be lost.

Like many of the ideas discussed here, it risks becoming a game of trying to find the one or two people willing to pay significantly over the average, to support everyone else. As more and more people become resistant to the urge to pay (or the moral need to pay), it falls apart as a system.

If you depend on people's morals to pay the bills, in the long run you will almost always be disappointed.

250,000 people downloaded Proun. That doesn't say anything about the PWYW sales model.

I downloaded Proun. I played it. I thought it was crap. I didn't pay any money for it.

In a similar vein, I paid $25 for the Frozen Synapse Humble Indie thing, but I pushed the payment slider for the developer to $0, and donated most of my money to the EFF.
I did this because I never liked the (vaguely) similar Laser Squad Nemesis, and the game itself didn't (and still doesn't) appeal to me in the slightest. I played the tutorial to give the game a chance, it played exactly like I expected, and I deleted it from my harddrive. If I'd actually liked the game I probably would have "bought" a second copy and actually given the developer some money.

There simply isn't enough data on PWYW models out there to come to a conclusion yet. The Humble Indie bundles are probably the most well-known, but they have a significant charity tie-in and a limited period of availability, which will skew any of their data.

HIB is obscure enough, and most other PWYW work has been even less well-known.

Saying PWYW has "failed" one guy selling a (in my opinion) bad game by making him ten thousand dollars so far and an ongoing ten-dollar-per-day income uses a very peculiar definition of "failed"...

Re:

Maybe some help with his model

Make it a requirement, prerequisite maybe, that low bidders would have to bring other visitors to the site perhaps via emails to friends to receive credits towards the lowball purchases. He would receive some compensation in the form of free advertising. Maybe a bonus credit could go to the lowball buyer if a friend buys an app!
>:-D

Re: Re: Re: problem is..

"I'll pay $40 for a game at a store, but I will not pay $40 for a download of same game."

Yep, that's my opinion too though I'm more of a console gamer nowadays.

I'd love to be able to make full use of Xbox Live Arcade and buy full retail games as well as the Arcade-only ones. But, by the time they make it to Arcade, the full games are often more or even double the price of new copies at physical retailers.

Why the hell would I pay that asking price for a product that's worth less by definition? Convenience isn't even a factor since you often have to wait 6 months for the download version - if I wanted the game that badly, I'd already have it...

I'd have to say that I think the price vs. content is usually on the money for the developers who are large enough to spend VAST amounts of money on a franchise or game. Be it Call of Duty, Halo, GTA, Forza, or any of the franchise games. Consumers tend to just get sticker shock from seeing a $60 tag for a new 360 game. Fact is, most of the games worth paying $60 for have so much content its worth it. I've purchased an elite edition of a game and was promptly saddened by the quality of the item(s) bundled, and now I won't do that again; However, between the DLC, online play, and USUALLY good campaign story/play there is sufficient reason for the price. I don't like having to pay for new DLC, but since it is an option and had a lot of work go into it I can't really complain. This was a great experiemnt and i'd like to see more of this. I'd really like to see this model applied to DLC and other digital content on the xbox. They could even take the concept of the android market and apply it here. You have a given alottment of time to return the product without being charged (say 3hrs for example) and then you have to pay up or its deleted/rendered unusable.

PWYW is a promo strategy

Folks, pay-what-you-want (PWYW) is a promotion strategy NOT a sales & revenue strategy. By promotional standards, nearly 250,000 downloads is very successful but smart business people and marketers know their goals before launching.

The points raised about barriers to buying are very important for developers to note. It's easier to get 250K free vs 1,000 paid sales regardless of the product, its quality, etc.

Re: Re:

You don't get it if all you play is the multi-player part of the game. I have a friend that did just that. They got it so that they could play in the multi-player levels with me. Yet have never played the stand alone game.

Re: Re: Re:

i'm more of a campaign player myself. I do enjoy playing live, but only after a few drinks and with a group of friends. I play it for fun and don't care about my kill death ratio and all that so I never get mad. I think more developers are gearing more towards the live players over the campaign players with the DLC coming out. If you buy a game for only its online content and get mad when its not up to snuff after you spent $60... that's on you. $60 is fine with me given the technology used to develop new engines(frost) and pay the voice actors(some of which are big name actors)to make the story great. I applaud them and reward them with my money and loyalty.

Misleading Piracy/torrent numbers

I imagine a lot of people did as I did, use the link to the torrent to try out the game as a demo before I thought to pay. (personally it didn't grab me as worth playing much, personal preference. )
It would be interesting if he had displayed playtime relating to payment amount. Although I can understand it if his software wasn't invasive enough to record that data, seems more like something valve would be able to do with steam.
There wasn't a demo option available so I imagine a good chunk of torrented version numbers can be discounted.

Re: Re: Re: problem is..

Honestly, I don't see why people are so "inconvenienced" to take the 2 minutes to make an account for something. (and before you go WELL DERP YOU DON'T HAVE AN ACCOUNT HERE, I don't come here every day. so it's kind of stupid for me to have an account) If you end up buying dlc, that's usually how they give you the code...not to mention that some devs have community forums, and that also signs you up for that. If having to sign up for an account to give a dev your info so they know who to send dlc to is too much effort, then you are just lazy.

Re: Re: Re: Re: Re: problem is..

If you don't play games everyday, then I could see why you don't want an online account. I was saying that mainly for actual gamers who play a game every day or buy multiple games from one company that they play every day. Because a lot of times your online account is how they send you updates and dlc you buy. But they usually don't ask you for your credit card info unless you actually buy something.

But honestly, stop being paranoid. Unless you actually like adjusting your entire life just because of what one idiot did to sony. Playing an online multiplayer game isn't going to infect your computer. That's why anti-virus and firewalls were invented. If you have a good one and not one of the crappy free ones that never work, you shouldn't even have to worry. I've been playing online games on console and pc forever, and the only "hackers" you are probably gonna deal with are the noobs on cod that can't get a kill without hacking.

Re: Re: Re: Re: Re: Re: problem is..

Well how else are you supposed to pay for purchases made online? If you are that paranoid, then don't have a credit card at all. You should be monitoring it anyway...because you can also get it stolen in the real world too. But I guess preventative measures to avoid being a victim of identity theft is "too inconvenient" to bother doing for some people.

And no, I don't use steam. I like to have the actual game. Don't feel like sitting there all day waiting for a 6GB+ download to complete. Much easier to just buy the disc at a store. Especially when it's one of the games that comes with dl codes for stuff...lol.

Re: Re: Re: Re: Re: Re: problem is..

No, I don't play everyday. I only play racing games. I refuse to own a credit card. I pay for everything with cash.

Not because of one idiot doing something to sony. I got sick and tired of maintenance required to ensure MS is free and clean. I use F-Secure Anti-virus suite. Sonys' rootkit got by it. That is what changed my habits(the one and only thing to get by it). Not what one guy did to sony, but what sony did to me and countless others. They owe me a week-end. You think I should trust say, EASports? Why should I? They, too, along with most content producers, use drm. When they buy me a PC, they can put what they want on it. Until then, I decide what goes on my PC thank-you very much.

Takes me 5 minutes to re-install Linux(10-12 minutes on old PC). Takes me 6 minutes, so far, to do a virus scan on MS(80-90 minutes on old PC). Time is money. My free time is even more valuable.

By the way, Identity theft is the last thing on my mind at all times. How they going to do it? Gotta steal my wallet. I wish them luck.

Re: PWYW is a promo strategy

Well, did they recoup their costs and got a profit that made them live happily ever after? If so, why shouldn't you consider it as a revenue strategy too?Oh wait, instead of earning billions you earned just enough for a decent home and a nice car. How can you buy those nice jets, helicopters and luxury yachts? Yes, great lesson learned.

Re: Totally Agree - If payment is diffiicult, less people will pay

Agree with the pressure on having to decide what to pay. It's like a part of you want it for free, a part of you want to be fair too. This pay scheme is getting more popular though. I watched this interview video and this about sums up this pay what you want pricing strategy: http://youtu.be/PzvNXI2pkGA

Re: Re: problem is..

Traditional economics tells you that people would rather have more of the goods at the least possible price. That's rational. But whip in some psychology and it says, people aren't often that rational. with the rise of behavioural economics comes this pay what you want model.